An increase in fintech services cater to Indonesia's young tech-literate population


An increasingly prominent and disruptive force in the financial services sector, financial technology ( fintech) comprises any innovative or technology-based financial service offered to consumers or businesses. Often viewed as a competitor to traditional financial service providers, fintech fills gaps left by the formal sector, offering an important avenue to boost financial inclusion in a country where smartphone and internet penetration rates are rising quickly, even as much of the population remains unbanked.

Supported by rapid expansion of e-payment platforms and peer-to-peer (P2P) lending activities, Indonesia’s fintech industry is in the midst of a period of profound growth. P2P lending recorded a triple-digit increase in 2018 (see analysis), while e-payment services have grown more than six-fold since 2012, prompting a surge of new foreign investment into a vibrant and increasingly diverse start-up community.

Indonesia’s large, young population and rising middle class should keep the sector on a strong growth path in 2019, with regulators hastening to improve consumer protection and transparency mechanisms to bolster sustainable expansion. Regulations establishing two regulatory sandboxes for fintech companies should provide some assistance, although recent government crackdowns on illegal and unregulated service providers in the P2P space have somewhat dampened the near-term fintech growth outlook.

Structure & Oversight

According to Indonesian consultancy firm Cekindo, there were more than 150 fintech companies operating in Indonesia as of late 2018, a 78% increase over 2015, while the Indonesia Fintech Association reports there are more than 200 fintech companies active in the country, including 31 licensed e-payment lenders.

The Financial Services Authority (OJK), meanwhile, stated in February 2019 that there were 99 licensed and registered P2P lenders. The sector is primarily overseen by three public entities: Bank Indonesia (BI), the central bank responsible for overseeing all monetary and payment systems; the Commodity Futures Trading Regulatory Agency (BAPPEBTI); and the OJK. BAPPEBTI is responsible for supervising all futures and commodity trading, including digital and cryptocurrency trading, while the OJK regulates and supervises all activities within the financial services sector. Its purview includes banks, capital markets, insurance, pension funds and non-bank financial services. Of the three, the OJK has been the most active in regulating the fintech industry.

Growth Drivers

Indonesian fintech industry benefits from numerous growth drivers that have supported rapid recent expansion, most notably its sizeable youth population and expanding middle class. Furthermore, the middle class is also increasingly connected to the digital landscape. As of 2018 there were an estimated 130m active social media users and about 143.2m internet users in the country, with 70% of this number accessing the internet via mobile phones. In addition, there are a further 415.7m active mobile subscriptions. Unmet demand for financial services is also fuelling expansion: some 17.2% of the population has borrowed money from a financial institution.

Applications & Services

These factors have driven payment platforms to become the dominant force in Indonesian fintech: in 2018 payment service providers accounted for 44% of the fintech industry. E-payments have recorded extremely strong growth as smartphone and internet penetration have risen. According to the Nikkei Asian Review, the value of e-money transactions rose six-fold between 2012 and 2017 to hit Rp12.3trn ($850m).

E-commerce is an important driver of take-up, but the fintech sector is diverse and expanding rapidly. Although payment platforms account for 38% of the fintech ecosystem, lending activities now account for 31%, followed by personal finance and wealth management (8%), comparison apps (7%), insurance technology (6%), crowdfunding (4%), point-of-sale systems (3%), cryptocurrency and blockchain (2%), and accounting (1%). It is likely that online payment platforms will continue to account for a large majority of fintech activities in the country in 2019; however, other segments such as P2P lending are catching up.

“A lot of people here still have a very narrow definition of fintech. Either it is an online marketplace, like Tokopedia and Bukalapak, or a lending platform. Services like fraud prevention or transaction support services to financial institutions are also fintech, but these are often overlooked,” Lishia Erza, chief commercial officer at Asyx Indonesia, a supply chain finance and collaboration services company, told OBG.

Policy & Priorities

The administration of President Joko Widodo has actively fostered fintech growth in recent years, under a mandate to transform Indonesia into South-east Asia’s largest digital economy by 2020, first announced in September 2016. “President Widodo is certainly pushing for a cashless society, and has supported several regulations related to guaranteeing data sovereignty and cracking down on fraud,” Vincent Iswaratioso, CEO of DANA, a start-up invested in by China’s Ant Financial and Indonesian media firm Emtek, told OBG. “However, becoming a truly cashless society will take time and education, especially as technological infrastructure, such as refined data-processing capabilities, still tends to be limited in Indonesia, both for e-wallets and credit cards.” Fintech services are also expected to play an important role in meeting near-term financial inclusion targets. According to the World Bank’s 2017 Global Financial Inclusion Index, the country’s unbanked population has been significantly reduced since 2011, when it stood at 80%, although 51% of adults in the country, or 95m people, still do not possess a bank account.

Estimates and definitions of financial inclusion vary, however. In 2015 BI reported a financial inclusion rate of between 38% and 39%, against the World Bank’s 2014 estimates of 36%. The OJK, for its part, has stated that 68% of the population is considered banked, although the authority does not take bank account ownership into consideration. The World Bank definition is more strict – financial inclusion is defined as an individual owning a transaction account where they can do cash-in, cash-out transactions, which helps to explain the lower financial inclusion ratio it reports. However, the bank notes a second dimension of inclusion: 30% of Indonesia’s banked population is considered by the bank as dormant — describing customers who have registered accounts that have either never been used, or that have been inactive for 90 days or more.

Furthermore, long distances between rural residences and bank branches continue to constrain financial inclusion. To address this, the government is currently examining the feasibility of linking Indonesia’s national biometric ID system – as 90% of the population holds a biometric ID card – to payment systems, which would expedite the verification process involved in opening a new bank account.

Inclusion Strategy

In November 2016 the government unveiled a new national strategy, coordinated among various public agencies, to promote financial inclusion and reduce the unbanked population. The National Strategy for Financial Inclusion comprises six pillars: financial education, public financing facilities, financial information mapping, supportive regulations, intermediary and distribution facilities, and consumer protection. Overall, it aims to reduce the number of unbanked adults to 25% by 2019. Given the levels of financial inclusion in 2017, however, the country is unlikely to meet this target.

As Indonesia seeks to boost financial inclusion and expedite its digital transformation, fintech is increasingly recognised as the best method to meet national targets. This is evidenced in government programmes such as the National Payment Gateway (NPG), which was launched in December 2017. The NPG is a nationally integrated electronic payment channel under development by BI and four banks – Bank Mandiri, Bank Central Asia, Bank Rakyat Indonesia and Bank Negara Indonesia. The NPG, while still in its nascent stages, could significantly transform Indonesian retail markets, in addition to boosting revenue collection and transparency in the country, supporting efforts to transform Indonesia into a cashless society (see Retail & E-Commerce chapter).

The private sector is also expected to play a critical part in advancing the government’s financial inclusion strategy through fintech solutions, prompting the OJK to take on an active role in regulating the industry through recent reforms seeking to promote sector stability, improve consumer protections and reduce non-competitive practices.

Regulatory Reforms

Until September 2018 the OJK had only regulated P2P lending platforms, although OJK Regulation No. 13 of 2018 expanded its regulatory mandate to all fintech firms. Regulation No. 13 is similar to BI Regulation No. 19/12/PBI/2017, issued one year earlier, which also seeks to regulate and support the country’s digital financial ecosystem. Whereas Regulation No. 19 specifically addresses payment systems for fintech that could affect monetary and financial stability, Regulation No. 13 covers a broader array of digital financial innovation. Highlights from the new regulation include a stipulation that any fintech firms engaged in financial service activities – which can include transaction settlements, capital accumulation, investment management, fund distribution and collection, insurance and market support services – must register with the OJK. Prior to licensing approval, the OJK will consider criteria including the level of innovation, use of ICT, support of financial inclusion and literacy, public benefit and accessibility, and a company’s ability to be integrated into existing financial services, as well as consumer- and data-protection mechanisms that are in place. These include reporting practices and data-protection procedures, as well as their ability to meet the requirement to locate data and disaster recovery centres within the country. The regulation further stipulates that fintech companies must offer outreach activities that improve the public’s financial literacy and inclusion, and have a customer service centre with a dedicated staff.


One important element of Regulation No. 13 is the OJK regulatory sandbox, a closed testing environment designed for companies and entrepreneurs that are experimenting with new technologies that do not currently fall under OJK legislative protection. Participating in the sandbox exempts companies from the authority’s non-prudential requirements. Companies are obliged to commit to full transparency and collaboration with the OJK and other relevant authorities, and participate in programmes aimed at developing the fintech sector.

The sandbox period lasts for one year, after which time participating companies are eligible for one sixmonth extension. When testing is complete, the OJK will issue one of three decisions: recommend the firm; advise that it needs improvement; or not recommend it. Recommended firms are permitted to proceed with OJK registration within six months. Stakeholders have questioned the efficacy and usefulness of the regulatory sandbox, however. In 2017 BI created a similar sandbox applicable to fintech firms offering payment systems, market support, investment management, risk management, lending, financing and capital allocation services. There appear to be a large number of similarities between the two different sandboxes: BI’s sandbox is similar to the OJK’s, but the duration is set at six months, extendible once for another six months.

As an alternative approach to sandboxing, some industry analysts have proposed a more extensive review process involving pilot projects and licensing. This method might be a more effective means of understanding risks and results, and better align with regulatory priorities. The creation of a new sandbox could also indicate a period of tightening regulations for fintech firms in Indonesia.

Main Players

In the payment platform segment, major multinationals are active in Indonesia’s fintech sector. The segment is dominated by local firm OVO, which claims to be the largest payment platform currently operating in the country. OVO is backed up by Indonesia-headquarted conglomerate Lippo Group and integrated with Singaporean ride-hailing app Grab. In December 2018 OVO announced that it had recorded $1bn in payment transactions since November 2017, a 75-fold increase over the previous year. OVO’s user base expanded by 400% over the same period, with the company reporting that 77% of its customers are based in the Greater Jakarta area. According to OVO data, the transport, retail and e-commerce sectors accounted for the bulk of transactions in 2018, while operations also benefitted from partnership deals signed with companies including Grab and Kudo, a local e-commerce start-up.

OVO is currently available as a payment option at 90% of Indonesia’s shopping malls across 294 cities. In 2019 the company intends to focus on small and medium-enterprises using quick-response smartphone codes. Another prominent player is GO-PAY, which has been developed as the payment system within the Indonesian unicorn GOJEK ride-hailing app, but is now increasingly accepted by external online merchants and offline retailers and restaurants.

P2P Lending

P2P lending is one of the fastest-growing segments of Indonesian fintech, recording triple-digit loan growth in recent years. Under OJK Regulation No. 77 of 2016, financial institutions that are able to become P2P lenders include pawn shops, guarantee institutions, export financing entities, secondary property institutions, and social security and pension funds that must take the form of limited liability companies. P2P companies must be registered with the authority, and need to apply for a separate business licence within one year of registration. In the years since the OJK issued Regulation No. 77 the number of companies registered as P2P lenders swelled from 10 to 99 as of February 2019, with lending growth reaching nearly 800% in 2018 alone. “The benefits of P2P lending extend beyond bank account ownership and financial inclusion. There is $75bn of unmet credit demand in Indonesia, and that is where we see the opportunity to provide alternative financing options,” Adrian Gunadi, CEO of P2P lending platform Investree, told OBG. According to Sharly Rungkat, deals strategy partner at global consulting firm PwC, Indonesia’s fintech market is often compared to more mature ones in Asia. “The Indonesian fintech lending space is often compared to that of China around five years ago,” she told OBG. “However, we think that Indonesia’s fintech players will forge their own path regarding the dynamics and growth of the sector. We are already seeing the differences in terms of the segmentation of the market into sector-agnostic and sector-specific lending, the collaborative relationship between the players and regulators, and the development of the online-to-offline business model,” P2P lending is easily outpacing traditional bank loan growth, and stakeholders report strong collaboration between the industry and regulators as the OJK seeks to support sustainable growth. However, hundreds of P2P lenders, many of them based outside Indonesia, have been operating illegally, prompting a regulatory crackdown in late 2018. Complaints of predatory lending have therefore somewhat dampened the segment’s near-term growth outlook (see analysis).

Start-Up Ecosystem

As the array of fintech services on offer continues to expand, Indonesia’s start-up community is benefitting from growth in the sector. President Widodo’s target of transforming Indonesia into South-east Asia’s largest digital economy will entail $130bn worth of e-commerce transactions (see Retail & E-Commerce chapter), as well as the creation of some 1000 tech start-ups, together valued at more than $10bn. A host of fast-growing fintech start-ups including Investree, Jurnal, Cashlez, TunaiKita, Payfazz, Modalku and KoinWorks have entered the market in recent years, and new investment announcements demonstrate how the as yet untapped potential of digital economic development is also benefitting the fintech sector. For example, after launching its mobile wallet GO-PAY in April 2016, GOJEK has raised more than $2bn in three funding rounds, which took place in August 2016, February 2018 and April 2018.

Online marketplace Tokopedia has also launched an e-payment service, TokoCash, supported by $1.1bn of investment from Alibaba Group Holding, which launched a separate mobile wallet, DANA, in partnership with local firm Elang Mahkota Teknologi, in March 2018. Disclosed fintech investment hit $176.5m in 2017, with the total transaction value in the fintech market projected to have reached $22.34bn in 2018. Fintech transaction values are projected to rise by 16.3% annually over the next several years as both domestic and foreign investors seek opportunities in an increasingly diverse and growing start-up community.

Legacy Hurdles

At the same time, many startups face challenges as they seek to enter the market, including a preference for traditional financial services, limited availability of cashless payment options, rising competition from foreign companies and a slow and unclear regulatory process.

Other challenges include currency volatility – most Series A, B and C funding is sourced from international investors and involves foreign exchange transactions, increasing exposure to currency risk – as well as limited knowledge of local market conditions.

“In agriculture, for example, a lot of new companies sell the promise of financing farmers and agriculture in the name of financial inclusion, but these companies often have a very superficial or foreign understanding and assumptions of how agriculture works in Indonesia,” Erza told OBG. “The majority of Indonesian farmers sell crops and livestock, but they do not often own the land – or, if they do, they sell their produce to aggregators who have taken on a very long risk. Fintech business models in this case may solve access to cash to a certain extent, but they are not exactly strengthening and enabling agriculture-based economies to reach scale.”

Disruptive Effect

Entrepreneurs may also find themselves squaring off against established financial service sector players, although some stakeholders report a growing trend among big banks to collaborate with disruptive start-ups. Bank Mandiri, for example, announced Rp300bn ($21.3m) of new investment in seven fintech start-ups during an October 2017 fintech conference, through Mandiri Capital Indonesia, its venture capital arm. Private bank BTPN is also investing approximately Rp1.3trn ($92.2m) to develop its own fintech platform in-house.

In February 2019 Bank Mandiri joined with the largest telecommunications company in the country, Telekomunikasi Indonesia and three state-owned banks – Bank Negara Indonesia, Bank Rakyat Indonesia and Bank Tabungan Negara – to merge mobile payment services into a unified platform, LinkAja. The new platform, which seeks to challenge the likes of OVO and GOJEK, also reportedly plans to expand into other financial services, including insurance.

Other forms of disruptive technologies are being met with stiffer regulatory resistance, however, including cryptocurrencies and initial coin offerings. BI moved to ban the use of cryptocurrencies in December 2017 and reiterated its warning against using cryptocurrencies such as Bitcoin in January 2018. Although the authorities moved in February 2019 to permit digital currency trading as a commodity on the Indonesia Stock Exchange, stakeholders have criticised paid-up capital requirements as overly burdensome and likely to stunt the growth of the cryptocurrency industry (see Capital Markets chapter). However, the technology that underpins digital currencies is blockchain, which holds significantly more potential for future growth (see Global Perspective). Blockchain technology is a decentralised and distributed ledger of records, or blocks, linked with cryptography. It allows many people to write entries into a record of information, and to control how that information is amended and updated. Blockchain technology could be used to improve networks and databases across hundreds of sectors and business areas, from capital markets to land registration databases. Blockchain holds perhaps the most disruptive potential of all fintech applications, and could make a significant impact on digital economic development in Indonesia.

According to a May 2018 Thomson Reuters Practical Law report, blockchain applications and platforms are being discussed and considered by several fintech-related authorities, including BI and the Ministry of Communication and IT. The former is working to incorporate blockchain into payment systems, while the latter seeks to use blockchain to provide transparency with regards to incoming and outgoing funds, and to crack down on corruption. However, overall blockchain development remains in its nascent stages in Indonesia.

“We see blockchain as a good platform because you can verify and secure many things using this technology. But whether the application of the technology is truly robust beyond the hype at this early stage of development is uncertain, despite the long-term positive outlook for blockchain,” Erza told OBG.


Indonesia’s fintech industry has shown remarkable expansion in recent years, bolstered by the country’s strong macroeconomic fundamentals, rising digitalisation and technological uptake, and unmet demand for payment and lending services. Supported by strong adoption of e-payment applications and soaring growth in the P2P lending segment, Indonesian fintech holds the long-term potential to become a transformative pillar of both the sector and the broader economy. This growth has not come without challenges, however, and regulators will likely continue to grapple with issues pertaining to consumer protection and bad actors in the fintech space, highlighting the need for sustained, proactive regulatory reforms and dampening the most optimistic near-term growth projections.

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The Report: Indonesia 2019

Fintech chapter from The Report: Indonesia 2019

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